US offshoring targets new destinations

Latin America may gain prominence as a destination for offshored US manufacturing jobs in coming years, according to research by BDO, a firm that provides US companies with assurance, tax, financial advisory and consulting services.

BDO’s 2014 Technology Outlook Survey, which polled 100 CFOs of trendsetting US technology companies, suggested that 57% of the jobs that respondents are planning to offshore will most likely go to Latin America. China, Southeast Asia and Eastern Europe came in a distant second with 13% each.

Survey results also showed that offshoring of US tech jobs is slowing.

Only 5% of the tech companies participating in the 2014 survey said they are likely to offshore US services or manufacturing jobs in the near future, down from 16% in 2013 and 20% in 2012. The turn away from outsourcing and offshoring is especially pronounced in emerging US tech companies focused on cutting-edge fields such as data analysis, said Aftab Jamil, a BDO partner and leader of the firm’s technology and life science practice.

“The pace of jobs leaving the US has slowed down,” Jamil said. But that doesn’t mean US tech companies are likely to close and uproot existing overseas operations.

More hesitancy to offshore is also leading some companies to create manufacturing jobs in the US rather than in China and India, traditionally countries with lower labour costs. One high-profile example is computer manufacturer Apple.

Apple plans to build a manufacturing plant near Phoenix, which will employ an estimated 700 workers, Arizona Gov. Jan Brewer announced Nov. 4, 2013. Apple currently manufactures its computers in Asia.

Reasons for less offshoring include rising costs in China and India and recent events that caused supply-chain interruptions in emerging markets such as severe floods in Thailand last year.

The BDO survey also found that:

Twenty-seven per cent of all respondents offshore services or manufacturing, but among US tech companies focused on hardware, it is 40% to 45%, Jamil said.

Sixty-five per cent of the tech companies that offshore said they have service or manufacturing operations in China. Southeast Asia came in second with 48%.

More than half (59%) of offshored operations involve manufacturing, 54% involve research and development, and 41% involve IT services and programming.

Twenty-nine per cent of respondents said they plan to bring work that is currently done offshore back to the US this year.

Related CGMA Magazine content:

“More US Manufacturers Want to Bring Back Production From China”: US manufacturers are increasingly planning to bring overseas production back to the US to reduce time to market and costs and improve product quality, research shows. Find out what would prompt companies to reshore even more manufacturing jobs.